The 2008 financial crisis and its subsequent bailouts has put a rather critical spotlight on large banks and the financial system. This scrutiny and ill feeling has now combined with an actual genuine grey area within our monetary system, to produce a potent reform narrative. The grey area in question is concerned with the way which in our system, new money is created by banks creating loans. This has always been kind of known by some economists, although certain theories and the education of students have often misled in this area. A prominent organization publicizing the issues and putting forward reform suggestions in this area is Positive Money. They are a group of serious people with a lot of good content on their website. Amongst others, respected FT journalist Martin Wolf has previously shown his support for some of their core arguments.

The two points I want to make regarding this subject, is firstly that alluding to this area of potential monetary reform as being 'a Money Tree', which phrase Positive Money actually use, is a slightly dangerous and misleading analogy. Secondly I want to show, by including a chunk of text from one of his lesser read books, that Keynes was familiar with similar what he called 'heretical' calls for reform to money creation, and had his own opinions as to their potential.

The Positive Money narrative in my opinion undoubtedly points out some important issues. Banks do inhabit a position within our system which gives them the privilege to create money through issuing loans, fairly unrestrained by the other factors which used to, or we used to theorise used to, restrain them. As Positive Money emphasize, the periods before and after the financial crisis highlight that, in that instance, it was mainly only confidence in the economy that dictated how many loans banks generated, and therefore the amount of money they created for the economy.

But despite Positive Money's insightful analysis, I cant help feeling uneasy about presenting to an online readership, no doubt made up of much anti bank and progressive left-wing readers, arguments which hold out the technicalities of providing money to use within the economy as 'a Money Tree' from which the proceeds can be diverted to different progressive causes. Although there might arguably be a windfall available to be taken out of the banking system and diverted to the state, it should be stressed more that it is of an inherently finite nature.

A rule of thumb for how big this windfall could be can be illustrated by looking at the wider picture. Money is the medium of exchange which is required to, as it were 'make the world go round', or 'to oil the cogs of the economy', and it is obvious that as an economy grows, the amount of different types of money an economy is using needs to roughly follow the same growth trajectory over the long term. (It is also worth noting here that measures of 'money' are notoriously difficult to define and use, which presents further complications to these questions.) Positive Money report that 3 percent of what we can consider money is actual physical cash, which obviously the Bank of England get the windfall from as the economy grows, leaving the 97 percent we are interested in.

So for example that means an average of 2 percent growth in a certain country over 10 years, means roughly 2 percent growth in the money in peoples and businesses bank accounts in that country. This value of the total funds in bank accounts, times by the growth of the economy, can be claimed to be a ball park figure of the actual yearly windfall up for grabs which banks presently pocket. Trends and changes in monetary habits will distort this ratio for sure, but the windfall must always in the long-term be roughly related to the growth in the economy in question. By definition it must be the case that, all other things being equal, increasing money in the system at a greater rate than the rate of growth, will lead to inflationary pressures.

Positive Money are right to highlight how much the money creation by banks fluctuated up before the financial crisis, and then down during and after. But just because the relationship is sloppy, does not mean it does not exist in the long run. The Positive Money narrative also neglects the role of monetary policy, which although perhaps put out of kilter by the exceptionally low inflationary factors in the last two decades, previously controlled the creation of money by banks a lot better. For whatever global savings glut, or cheap imported goods or global imbalance reasons, there have been factors holding down inflation in the last few decades. Although recently it did seem to be all down to confidence (some of which of course turned out to be hubris) monetary policy through the inflation feedback dial and base rate lever, did used to limit money creation by banks reasonably well. But this system failed to work when the inflation level as a feedback mechanism, did not go into the red in the credit bubble before the financial crisis. It is an indirect kind of mechanism, but it used to kind of work, and could work again in the future.

We now know that QE was used to counter the dramatic contraction in the money creation by banks after 2008. The banks stopped creating money by stopping creating loans, and the authorities had to step in to take up the slack. But this dramatic economic spectacle of QE understandably creates many questions for people with anti bank and progressive views. “Wait a minuet, nobody told us it was that easy to get money !” “The government has been going on about austerity, while behind the scenes the monetary authorities have effectively bought about a quarter of the total government debt off the private sector, using QE money created out of thin air?” The well analysed outcomes of QE also feed the radicals fervour, as the QE money just pumped up the asset values of the already wealthy, making inequality worse. Positive Money and others have a point that QE could have been applied in ways to improve inequality rather than make it worse. One cautionary note in favour of the QE in the way it has been performed is that it is conducive to being easily reversed or unwound, where as reversing the more progressive 'QE for the people' would be more complex.

As the saying goes, 'when you are holding a hammer, every problem looks like a nail'. If you are of a left-wing, anti capitalist, anti banker disposition, and you are told their exists a money tree which extracts money from bankers pockets, that idea is understandably very appealing. But progressive thinkers in this area need to be self disciplined, and emphasize the finite nature of the windfall which could potentially be available to be transferred to the state. Also it is easy for groups like Positive Money to experience a kind of mission creep which crowds out the initial remit and puts off those who see some sense in their core concepts. Seek to set up a system which creams more off the banking system than the rough formula above allows for is a very old trick called debasing the currency, which short-sighted or plain greedy leaders have done ever since money was first used centuries ago.

The timing of the interest in this area is notable as being after a period of low inflation; people have forgotten how bad inflation can be. Global inflationary pressures have been very low, but the very nature of inflation means that factors which affect it can be temporary, and once absorbed into one years numbers, are literally history, washed out and have no effect on the next years metric. The future of China's massive and unique economy is a large unknown quantity in world economic stability, and China is not going to be a low cost exporter and savings glut supplier for ever. Economies around the world are starting to experience better growth numbers, so the potential reflationary motive for a 'peoples QE' could look perverse in a few years.

But few ideas in economics are completely new, and concluding upon an alchemy or panacea within the intricate and opaque way in which money and banking interact, is a fallacy which has reoccurred over the decades. John Maynard Keynes was, besides being one of the greatest economists, of an intellectually agile and daring disposition, which made him willing to suggest upending any convention or established wisdom. As such, as he describes below, he became a magnet for those who also believed they had found their own version of the magic money tree, whose supporters, called heretics by Keynes, likewise claimed could answer the problems of their day. He wrote this in 'A Treatise On Money' vol 2, published in 1930, (The Collected Writings of JMK vol VI)

“By writing a 'Tract on Monetary Reform' and opposing the return to gold, the author of this book has gained amongst them a better name than he deserves for being a sympathetic spirit. From all quarters of the world, and in all languages, scarcely a week passes when he does not receive a book, a pamphlet, an article, a letter, each in the same vein and using substantially the same arguments. It is a problem for any student of monetary theory to decide how to treat this flood, how much respect and courtesy to show, how much time to spend on it—especially if he feels that the fierce discontent of these heretics is far preferable to the complacency of the bankers. At any rate, we cannot be right to ignore them altogether. For when, as in this case, the heretics have flourished in undiminished vigour for two hundred years—so long in fact as representative money has existed—we may be sure that the orthodox arguments cannot be entirely satisfactory. The heretic is an honest intellectualist, who has the pluck to stick to his conclusions, even when they are surprising, so long as the line of thought by which he reaches them has not been refuted to his own understanding. When, as in this case, his surprising conclusions are also of such a kind that, if they were true, they would resolve many of the economic ills of suffering humanity, a moral enthusiasm exalts and strengthens his obstinacy.” P193-4 'A Treatise On Money' vol 2 (The Collected Writings of JMK vol VI)

“It has been a principle object of this treatise to give a clear answer to these perplexities. What is the true criterion of a creation of credit which shall be non-inflationary (free, that is to say, from the taint of profit inflation—income inflation is a different matter)? We have found the answer to lie in the preservation of a balance between the rate of saving and the value of new investment. (Positive Money are correct to highlight that individual banks are not reliant on having savings deposited with them before they can give out loans. This perception of how banking works may have been partly true a long time ago, but now the norms on banks matching liabilities with assets / deposits with lending are much changed. However Keynes is highlighting that although on a specific bank level the balance does not matter, at the economic system level, the balance between savings and loan creation does matter. On a basic system level, saving is taking money out of circulation, while creating loans is adding money to the circulation.) That is to say, bankers are only entitled to create credit, without laying themselves open to the charge of inflationary tendencies, if the net effect of such credit creation on the value of new investment is not to raise the value of such investment above the amount of the current savings of the public; and, similarly, they will lay themselves open to the charge of deflationary action unless they create enough credit to prevent the value of new investment from falling below the amount of current savings. How much credit has to be created in order to preserve equilibrium is a complicated matter—because it depends upon how the credit is being used and upon what is happening to the other monetary factors. But the answer, though it is not simple, is definite; and the test as to whether or not such equilibrium is being preserved in fact can always be found in the stability or instability of the price level of output as a whole.

The mistake which the heretics have made is to be found, therefore, in their failure to allow for the possibility of 'profit inflation' (Keynes used this distinction between profit inflation and income inflation a lot within these two books. He categorizes a 'profit inflation' as a period where entrepreneurs are gaining faster than workers, while an income inflation is opposite. In a period of profit inflation, the price of commodities and other goods will be rising faster than workers wages, benefiting the entrepreneur and capital owners, and increasing a countries wealth. P264 vol 1 p144 Vol 2.). They admit the nature and evils of income inflation; they perceive that to advance credit to the entrepreneur, not to increase the remuneration of the factors of production, but to enable him to increase their employment and hence their output, is not the same thing as income inflation, since new wealth is created to an amount corresponding to the new credit—which is not the case with income inflation; but they have neglected the last term of the fundamental equation—they have not allowed for the contingency of investment outpacing savings, of the new wealth which is created not being in consumable form simultaneously with the new spending power allotted as their remuneration to the factors of production.” p197-8 'A Treatise On Money' vol 2 (The Collected Writings of JMK vol VI)

“It is not surprising that saving and investment should often fail to keep step. … the decisions which determine saving and investment respectively are taken by two different sets of people influenced by different sets of motives, each not paying very much attention to the other.” p250 'A Treatise On Money' vol 1 (The Collected Writings of JMK vol V)

This emphasis was probably influenced by the fact that Keynes' book was to a large extent observing and reflecting on the extreme economic conditions produced in Britain and Europe by the WWI and total war economies, and then the period after. The massive deployment, borrowing for military spending and then the sharp drop in activity at the end of the war was a disruptive tsunami in economic terms. A total war economy illustrated for Keynes a laboratory experiment in what happens when forced new economic activity is created through government finance (credit creation) beyond the equilibrium level in relation to savings. The war economy created a tension in that money was flowing into the pockets of the workers involved in the extra labour demands of the military effort, but they were not producing goods which would absorb consumer spending. The armaments etc were being consumed by war, and not sold back to workers. This left the extra spending power chasing the same goods.

It is as if Keynes is saying that the heretics are claiming that their schemes for using the magic of money creation to employ the unemployed would not create inflation, because their wages would be the same as the going rate. But Keynes is saying in that last sentence that extra employment paid for, not out of the proceeds of normal production of goods and services by a business, but instead created out of the magic of the monetary system, would be inherently inflationary, as their wages came into existence without contributing to anything for them to be spent on.

Much of Keynes' two volumes of 'A Treatise On Money', published in 1930, besides being heavily influenced by the economic shock of WWI and its aftermath, was also a hymn to having an enabling, slightly growing amount of money in an economy, to provide the oxygen needed for growth and enterprise. The economic environment of the 1920s in Britain were dominated by the now widely considered unwise desire to meet a deflationary Gold Standard re-entry, which Keynes was famously critical of. With authorities having obviously learned about the dangers of deflationary monetary environments, (with possibly the EU regarding Greece excepted ! ) what kind of book would Keynes write today? Keynes' name is usually associated with reflationary policies, but that is only partly fair, while being partly an accidental effect of the times in which he was commenting on. Reading of this book shows he was also thinking about balance and equilibrium, and not wedded to only reflationary policies in all weathers.

Arguably now the pendulum has swung too far in the other direction, past a money creation system which, unlike the Gold Standard, enables the growth of the real economy, onto a system which creates money all too freely when banks have the confidence to see a profit up for grabs. The path is one of more asset bubbles, more debt, and more parasitic speculation, in an inflated financial services sector which is less and less about 'serving' and enabling the real economy though such tangible things as business loans and corporate finance. The governments / central banks are then frightened into enabling this addiction as it maintains an asymmetric stance towards asset bubbles, loosening monetary conditions and using QE to combat the fallout from crises, while never being that hard on perceived bubble conditions. The medicine used to heal one crisis feeds the next bubble forming. ***

The aim should be to have a money creation system which serves its role better, without being put off course by swings in confidence and fear. If the state can capture some windfalls along the way, great, but it would be wrong to replace the temptation of private banks excess money creation with the temptation of government excess money creation.

Anthropologist David Graeber’s new book, Bullshit Jobs: A Theory, raises some excellent questions about jobs, value (economic), values (cultural/societal) and the future of work. I thoroughly recommend the book to anyone who cares about those matters. But the book explores these issues through Graeber’s anarchist-leaning lens and is self-confessedly short on answers that align with Graeber’s own intense scepticism about achieving desirable change through conventional political institutions.

In this pamphlet, I shall attempt to look at the same issues through a Long Finance lens. I won’t pretend that I am long on answers myself – I think the future of work is one of the thorniest long-term problems with which our society needs to grabble at the moment – but I do have some ideas and at least hope to frame some darned good follow up questions.

In the summer of 2015, I was asked to write a futurology piece for SAMI Consulting – the result was Machine Learning and Professional Work – A Lookahead To 2040. Coincidentally, that summer, I first met David Graeber and realised that his seminal 2013 Strike Magazine article, On The Phenomenon Of Bullshit Jobs, was very relevant to my piece. If the world is awash with “bullshit jobs” now, what will it be like in the coming decades when a large proportion of today’s meaningful jobs are either automated away or become bullshit-protected jobs?

So when I chatted with David Graeber again on these matters in April 2018 and he kindly gave me a draft of Bullshit Jobs: A Theory, I decided it was time for me to revisit these crucial issues; this time from a Long Finance – specifically an Eternal Coin - perspective.

Bullshit Jobs: Some Inconvenient Truths

A great many jobs are utterly pointless or even societally harmful – not only from an external, independent perspective, but from the subjective assessment of the people performing those jobs. Graeber reminds us of John Maynard Keynes prediction that, by the year 2000, the standard working week would have been reduced to 10 to 15 hours through automation and productivity gains. Instead, suggests Graeber, we have created swathes of meaningless jobs and protected swathes of obsolescent ones.

According to Graeber, his article, On The Phenomenon Of Bullshit Jobs, led to a flood of e-mails from people with tales of their bullshit jobs. It also led to YouGov polls in the UK and elsewhere in Western Europe, in which 38% to 40% of respondents declared their jobs to be pointless. Most of those people also stated that they were rendered miserable by their jobs.

We can question the rigour of elements of the research method. Self-selecting individuals with tales - sometimes monstrous behaviours, sometimes hilarious scenarios of pointless activity, often a combination of tragedy and comedy at the hands of hapless managers – are surely not a representative sample. Nor to some extent are responses to a YouGov survey, however careful the survey method and choice of wording, when the question is a leading one, along the lines of “do you think your job is pointless?”

Yet, almost everyone who reads the book is likely to agree that Graeber is onto something. Bullshit jobs is “a thing”, as the young folks say. Moreover, it is a thing that is likely to become increasingly prevalent as automation’s relentless expansion potentially gobbles up more and more jobs.

Most of us can think of examples we have encountered in the world of work – be it ludicrous bureaucracy or visible employees who can be seen doing little or nothing at all by way of meaningful work.

Those of us familiar with Parkinson’s Law - the original article is still a highly recommended, cracking good read - will recognise the notion that work expands to fill the time available in which to get it done. While Graeber doesn’t reference Parkinson’s Law (surprisingly perhaps), the ideas are quite closly related. Parkinson doesn’t just focus on individuals filling their time, he also quotes, for example, Admiralty statistics that show, laughably, that staffing in the Admiralty continued to grow substantially, even after the British Navy had shrunk markedly. Many of those Admiralty jobs must have been bullshit jobs; C Nothcote Parkinson was simply too polite to use that term.

Bullshit Jobs: Some Really Good Questions

Graeber sets out three really good questions on page 154, looking at the problem on three levels:

Individual: why do people tolerate bullshit jobs?

Economic/social: what has led to the proliferation of bullshit jobs?

Political/cultural: why isn’t the proliferation of bullshit jobs seen as a societal problem and dealt with?

In his rigorous yet chatty style, Graeber takes the reader on a whistle-stop tour of the history of work, pointing out that the idea of treating time as a monetary currency is a relatively recent social construct, founded at the time of the industrial revolution and steeped in the labour theory of value that, resultantly, emerged in that era. The notion of work being an inherently virtuous way to pass time is not much older, originating during the mediaeval, feudal period, in England and some other parts of Northern Europe, subsequently becoming known as “the work ethic”. Graeber suggests that managerialism is the agent of modern feudalism.

Although this historic analysis doesn’t directly address the above questions, Graeber suggests that this history leads to most people’s sense of dignity and worth being intrinsically linked to work and specifically their job. The irony that so many people largely define themselves by, yet simultaneously hate their jobs is not wasted on David Graeber, nor on me.

Another paradox, which touches on all three questions, is the notion that our society has a (religious or mythological) cosmology imagining that work is an appropriate place for human beings.

Actually, Graeber raises a further darned good question (omitted from the above list) when he suggests that there seems to be an inverse relationship between social values and pay, wondering why this might be the case. He suggests that the answer might, in part, sit with the mediaeval work ethic idea that social value work is done for love whereas paid work is done for diligence and need. In service sector jobs, much of the value emerges from the care element of the work, which is, paradoxically, the least quantifiable element.

Graeber wonders whether the information revolution might be in part the cause of the proliferation of bullshit jobs, simply because information sector jobs and roles tend to be intangible, with benefits hard to measure and value difficult to quantify. He also wonders whether the distinction – perhaps even opposition – between value and values, might eventually lead to a revolt by the caring classes.

In that 2010 paper, Malcom Cooper set out the history of value, starting some 4,000 to 5,000 years ago. David Graeber, coincidentally, covered a similar period in his excellent 2011 book, Debt: The First 5000 Years.

The history element of both of those works is fascinating, but the stored value element, which is the Eternal Coin’s focus, is intrinsically linked with what such a coin might exchange for in the future. When Cooper starts to discuss what the current and future Eternal Coin might comprise, there is some even more intriguing foreshadowing of Graeber’s ideas in Bullshit Jobs. For example:

“Time and information have always been important contributors to wealth creation, but in the past both impacted on a scale which was measurable. It is no longer clear if this is the case...” In Search of the Eternal Coin p25

From an eternal coin perspective, it is understandable that many people tolerate their jobs (bullshit or no) simply in order to contribute income towards their individual or family’s existence, while avoiding being a drain on the family’s stored wealth or indeed that of the state.

Further, most people consider aspiration to be a mostly virtuous characteristic in people and in societies. Cooper again:

“All of our Eternal Coins were driven by aspirations, and for much of the last couple of centuries these have been underpinned by a general belief in human progress towards a wealthier, more comfortable, more secure future. What happens to Long Finance if this belief falters? One of the more compelling historical truisms is that revolutions are often caused by decelerations in the rate of progress and frustrated ambition (thus the place of the middle class in the vanguard of most modern revolutionary movements).” p28

On a potentially more positive note, I have long been intrigued by thinking around information as a model or societal syndrome. I referenced Pat Gratton, Chris Phoenix and Tom McKendree in my 2008 Gresham Lecture, Commercial Ethics: Process or Outcome? Those thinkers, like Graeber, struggled to place idealists - such as inventors, authors of Wikipedia entries and designers of public domain source code - into the conventional, binary divide of societal syndromes, commercial or guardian. They settled on the notion of information syndrome to describe this type of activity. One interesting observation is the economic or value characteristics of such activities. Guardian syndrome activities (which would include bullshit jobs) tend to be negative or zero sum in terms of value, commercial syndrome activities tend to be positive sum. But information syndrome activities are not only positive but potentially unlimited sum activities, as information assets can be widely shared and enjoyed. That is potentially a hugely positive thing for society, but only if we are able to harness for good the rapidly changing characteristics of the things we might do to add value to society.

So, in my view, we don’t inevitably face a dystopian future, or at best a dystopian transition to a better future. It is surely possible to envisage a progressive, positive, evolutionary course through these changes.

Ideas And Aspects Worthy Of Further Exploration

David Graeber only makes one firm policy proposal in Bullshit Jobs: A Theory; a universal basic income (UBI) for all citizens. This is not a new idea, indeed the Permanent Fund Of Alaska is to all intents and purposes a UBI. Further, UBI has recently been trialled in Finland – although personally, I wonder how “universal” such a trial is when merely piloted with 2,000 citizens in a Finnish town.

Of course, most developed nations have something akin to a UBI in the form of benefits systems – they are in theory a safety net to ensure that all citizens have their basic needs covered.

But I am attracted to a similar but subtly different type of system, also not new but barely tested, which I call a universal benefits and income tax system. One of my great bugbears in developed nations such as the UK is the extreme complexity of the benefits and taxation systems. Add to that the lack of integration between those two systems and the result, almost everywhere, is excessive bureaucracy, many instances of unintended consequences, perverse incentives and unfair outcomes. The fact that some of the very highest levels of marginal taxation in the UK occur at very low levels of income, when workers lose benefits and pay tax and pay national insurance contributions strikes me as ludicrous as well as grossly unfair and regressive. A single universal system could iron out much of the complexity, bureaucracy and unfairness in the tax and benefits systems. It would also deliver many of the benefits Graeber and others boast for UBI.

David Graeber also flirts with the idea of centralised economic planning in Bullshit Jobs: A Theory, wondering whether improvements to computerised modelling techniques might right most of the wrongs of Soviet-style economic planning. This was one of the few places in the book where I disagreed with David profoundly – I think macro-economic modelling is one area where the onset of technology couldn’t help unless the society was unbearably repressive, as the same advances that would enable theoretical state-level planning would also enable private sector operators to emulate and game the state-based planning system. It is a surprising suggestion from Graeber who is, for the most part, a small-state anarchist thinker rather than a statist.

“Yet, word from the front line of LETS is that organising a currency, even a simple, local time bank one, can be very hard work. Many volunteer-based schemes disappear as rapidly as or even faster than they appeared. Very few LETS make a transition from community organisation to influencing significant chunks of local business.” Changing Money Transcript p9.

I now believe that advances in distributed systems, not least mutual distributed ledger (or blockchain) technologies could enable many LETS and time banks to flourish beyond the attractive but small-scale initiatives achieved to date.

I also believe that such technologies could be transformative in the simplification of tax and benefits systems; not only for developed nations such as the UK (discussed above) but also in developing nations, where many people face far more basic problems, e.g. the inability to prove their identity and/or financial exclusion. Those who are financially excluded are mostly condemned to perform either shit jobs or bullshit jobs. Coincidentally, the various estimates for financial exclusion range between 30% and 40% of the global adult population. Similar to the “problem percentages” that emerge from David Graeber’s research into bullshit jobs and certainly as important if not more important, if our aim is to improve lives, reduce misery and value individual’s contribution to society more fairly.

An eternal coin perspective on a problem forces us to think globally and to think sustainably. Current paradigms about jobs, value, values and work are neither equitable nor are they viable in our changing world. Humankind no doubt has the intelligence to recognise the problems and invent workable solutions, but do we have the strength of character and leadership to adopt and implement those solutions?

The Global Green Finance Index (GGFI) provided by Finance Watch and Z/Yen aims to promote the uptake of green finance in the world’s financial centres. The GGFI is based on a perception survey of the depth and quality of green finance offerings in different financial centres.

This blog post looks at how perception can complement historical data in measuring and promoting change and how this thinking has been applied to the GGFI.

Perception and measurement

Perception is a natural part of observation and measurement. In finance, a large number of indices and benchmarks rely on the opinions or perceptions of people in a market, such as the Baltic Exchange, or the potash and coal markets, where benchmark prices are set by polling market participants on their price expectations.

Indices that are based on historical transactions also embed some element of perception: benchmarks such as the Dow Jones or DAX 30 are calculated by multiplying the number of shares outstanding by their closing prices. But the closing price of a share is only the value as perceived by the last two people who traded it. Other people may have different views, and large stake sales or takeovers are almost never executed at the previous day’s closing price.

The story is similar outside of the financial sector. Someone trying to identify the world’s biggest shipping port, for example, might look for empirical data on capacity such as the number of container (TEU) movements, the physical area covered by the port, or the number of berths. But empirical measurements still involve perception and judgements. Should we count transhipments as well as imports and exports? Does port area include only land, or also water? How do you account for differently sized berths?

Selecting which metrics to use is itself an act of judgement, incorporating a subjective view about which data is reliable and relevant to answer the question. If the decision-maker has a particular view on how the size of ports ought to be measured, their choice of metrics is likely to reflect that outlook.

Measuring green financial centres

For any index provider, choosing whether to use historical data or informed judgements about the future will depend on the audience and objectives. A house price index based on last year’s historic transactions could give very different readings from one based on informed judgements of next year’s prices; an official from the land registry and a land speculator would probably choose different metrics.

In green finance, activity levels are small compared with the overall market but are growing quickly. A balance of historical and forward-looking metrics should, therefore be more useful than either approach on its own. Historical data on green finance assets is beginning to emerge but remains patchy. For example, there is no official data on the proportion of green bonds listed on each exchange; data often comes with a long time-lag (in markets that can double in a year); and rules for labelling and reporting ‘green’ assets vary widely between countries. There are many other gaps beside these.

There are also definitional problems. If a green bond is issued by a French company, underwritten by American banks and listed on exchanges in Luxembourg and London, which financial centre should the bond be attributed to? How meaningful is that attribution, given the global nature of many financial institutions and the aim of encouraging green finance uptake across the board?

The alternative to historical data is to use informed judgements about the future, but this approach also has its complexities. As Professor Michael Mainelli from Z/Yen explains: “an informed judgement index needs to find ways of ‘normalising’ a diversity of short-term adjustments, for example a lack of known underlying trades at a point in time, or diverse product sources and destinations, using arithmetic approaches, statistical approaches, panels, ‘model’ contracts, or weightings.”

Our approach in the GGFI

Our approach with green financial centres is to use perceptions as the core data and minimise subjective judgements elsewhere. The GGFI thus gathers informed judgements about the depth and quality of the green finance offerings in the financial centres that respondents know – typically around 5 per person – and then applies “factor assessment” to complete the data set.

Factor assessment is a statistical technique to analyse survey responses against a large set of quantitative data and look for correlations. These are then used to predict the ratings for unrated centres using the correlations that already exist in the survey data.

The technique is used in medicine and industry and has predictive accuracy above 90%. Using it here allows us to bridge the gap between available historical data and forward-looking survey data.

Perceptions can change behaviour

There is also a practical reason to focus on perceptions: the way people think is a big factor in changing behaviour. Before organisations such as Carbon Tracker began talking about stranded assets – the idea that assets such as oil or gas reserves may become worthless if climate change policies prevent them from being used commercially – many professional investors did not consider the financial risk of owning such assets. But now that perceptions about the role of fossil fuels and climate change have evolved, investment portfolios are changing too. Well-known fossil dis-investors such as New York City and the Norwegian sovereign wealth fund have been joined by more than 800 pension funds, cities, universities, foundations, churches and other organisations in exiting fossil fuel investments.

People’s perception can thus be a powerful force for change and knowing what those perceptions are is the first step.

The comparison between perception and historical data can also be useful. Measures of “green intensity”, which compare green finance with overall financial activity levels, show how far there is to go before financial centres can be said to support a sustainable economy. Historical data shows a green intensity of 2% or less in some asset classes. This stands in stark contrast to the perception that penetration rates for green finance are 30% or more, as revealed by the GGFI survey, even allowing for the time-lag.

Such a difference can illuminate people’s thinking. Whether it reflects optimism or complacency, or something else completely, it will enrich the feedback for policymakers as they develop sustainable finance policies.

Technology now allows: (a) money to be simplified to be only a medium of exchange, (b) economic value to be automatically defined by the ability of humanity to sustain life on earth without consuming non renewable energy resources, and (c) a medium of exchange to be created on a decentralized basis with a negative interest rate so it is no longer a store of value or source of inequality and exploitation. Real assets that sustain life and well-being would provide a superior way to store value.

The concept of economic value is a social construct created by humans. There is no official money that can be defined by any one or more specified goods or services. Money has become disconnected from reality. Astoundingly, disconnected money is used to price real assets for their supposedly “efficient” allocation. But how can this belief in market efficiency make any sense if money cannot be defined by anything real? Is this belief a religion and/or are we insane?

Even if the value of money was defined by a basket of commodities, why should efficiency be the paramount criteria for asset allocations? Efficiency becomes meaningless if humans cannot sustain their wellbeing on the planet. There are many more important criteria for allocating resources such as surviving pollution, extinction of flora and fauna and climate change.

Modern societies are crucially dependent upon energy. Energy can provide the essentials of life like clean air, water, food, clothing and shelter. Sustaining life in any region of the planet becomes dependent upon the ability of each region becoming dependent upon access to benign renewable energy. A sustainable global population depends upon the capacity of each region to service humanity from only benign renewable sources.

The Internet of Things (IoT) allows an index of sustainability to be automatically determined from the efficiency of investment providing benign renewable energy from local sources and the dependency of the host bioregion on using such energy. Data on the efficiency of consuming the production of renewable energy from the installed capacity is already collected . Data is also available on the reliance of each region on renewable energy. The most efficient and dependent regions would obtain the highest index of sustainability.

As renewable energy technology has a life of from twenty to hundred years, a five-year rolling average of its efficient and dependable use would change only slowly and in a predictable way even if major breakthroughs in technology arose. This makes the sustainability index an ideal anchor for defining the value of a medium of exchange. The most sustainable regions would obtain the most value for trading with others.

The stability of the index would exceed any current official or current crypto currencies and so it would promote investment. Official currencies are subject to unpredictable, unknowable, complex political and economic variables. Official currencies are subject to official manipulation or offhand remarks by political leaders as well as unofficial manipulation by bankers, hedge funds and speculators.

It would make compelling commercial sense for trade or investment contracts to use the sustainability index of value, rather any official or crypto-currency to minimize uncertainty. Such contracts could be created by anyone anywhere. Financial innovators could then use credit-insurance to allow such contracts to become publicly traded. The cost of the insurance could be attached to the contract to create privately issued cost carrying money. This type of “negative interest” money emerged in Europe and the US during the Great Depression .

At that time it was issued as paper money that typically was only valid for one week. To maintain its validity users had to affix a stamp to the script each week purchased from the issuer. A stamp of two percent of the face value of the scrip meant the after 52 weeks the issuer had collected 104% of the face value. This allowed the issuer to redeem the money with a 4% profit. Digital money and the Internet now make this type of money practical again. Even without a Great Depression it is now circulating again in Germany . It circulates much quicker than official money because it has the human attribute of “use it or lose it”. For this reason I refer to it as “ecological” money in my writings.

Additional details are in my conference paper. My paper answers in the affirmative the question in its title: “Is a stable financial system possible?” It concludes that sustainable indexed ecological money would:

1. Establish a medium of exchange with a stable predicable value;2. Recognize only indirectly, over the longer-term, changes in production, consumption or technology;3. Avoid manipulation by speculators;4. Reduce the cost of the financial system;5. Eliminate a financial crisis in one region spreading to another;6. Eliminate financial instability within each region;7. Eliminate inflation created by excessive money creation;8. Create incentives for investment in benign renewable energy and storage systems;9. Reduce and/or eliminate the need for carbon taxing or trading;10. Encourages the location and size of the population in each region to become sustainable in perpetuity.

Written by Dr Shann Turnbull who has developed his ideas from three earlier postings in 2013, 2015 and 2017

Whenever the topic of fraud in the financial sector is discussed, the conversation soon moves on to Ethics. There is usually the subtext that by enforcing ethical behaviour, all backed up with effective teaching of the topic in school, colleges and business schools, fraud will be minimised. It’s not that simple. Ethics is not an absolute and singular notion, however, it is taught as if it is well-defined, usually as some variant of Judeo-Christian morality. That naïve stance does not bear close scrutiny.

In her book Systems for Survival, Canadian economist Jane Jacobs proposed a very interesting model for the ideal community, based loosely on her reading of Plato’s Republic. By looking at how humanity deals with its needs, she divided us up into two groups, each with radically differing value systems; she calls them ‘moral syndromes’. One ‘produces and trades’: this is the ‘commercial’ syndrome and includes the occupations that produce and supply our physical needs. The other ‘scavenges and takes’: this is the ‘guardian’ syndrome composed of individuals who maintain the cohesion and coherence of society. In order to trade effectively commerce needs the guardians both to ward off predators, and to set down and enforce standards of probity. The costs of this service are paid for out of the profits of commerce. The trick is getting the balance right.

Jacobs’s book describes a series of conversations between various characters as they compare and contrast the syndromes. They concluded that each syndrome has a code of ethics, which is not only distinct from the other, but also they are often mutually incompatible, as can be seen in the table below. A society is healthy when members from the two syndromes co-exist in relative harmony. However, Jacobs warns us that “you can’t mix up such contradictory moral syndromes without opening up moral abysses and producing all kinds of functional messes”. She states her “Law of Intractable Systemic Corruption”. Any compromise to the ethical standards of a particular syndrome, for example by employing the ethics of the other, will corrupt the former syndrome’s integrity. The expediency needed to function in such a world of distorted values will convert some virtues into vices, or at the very least individuals become morally inconsistent.

Jacob’s book is full of examples. The transfer of titles and property from father to son is perfectly acceptable in aristocratic societies, but in commercial groups this is considered nepotism. The Mafia was originally formed to protect a Sicilian community from exploitation by its political elite. Only when they moved in on trade to fund their operating costs did their guardian attitudes trigger the Cosa Nostra’s mutation into “a monstrous moral hybrid”. Then their definition of trade began to involve intimidation and bribery. By the same token, whenever economic planning is subsumed by political guardians, as in socialism, the claimed material support of the masses always degenerates into cronyism.

Table: the two codes of ethics

The Commercial Moral Syndrome

The Guardian Moral Syndrome

Shun force

Come to voluntary agreements

Be honest

Collaborate easily with strangers and aliens

Compete

Respect contracts

Use initiative and enterprise

Be open to inventiveness and novelty

Be efficient

Promote comfort and convenience

Dissent for the sake of the task

Invest for productive purposes

Be industrious

Be thrifty

Be optimistic

Shun trading

Exert prowess

Be obedient and disciplined

Adhere to tradition

Respect hierarchy

Be loyal

Take vengeance

Deceive for the sake of the task

Make rich use of leisure

Be ostentatious

Dispense largesse

Be exclusive

Show fortitude

Be fatalistic

Treasure honour

Source: Jane Jacobs, Systems for Survival, Appendix, Page 215

Commercial planning for guardian priorities, as in the Soviet Union, indeed all socialist states, leads to a collapse of commercial endeavour. Mikhail Gorbachev summed it up beautifully: “they pretend to work, and we pretend to pay them”. By the same token, the imposition of commercial measures will inevitably corrupt the guardian’s sense of honour. Placing key performance indicators on police officers will lead to them ‘fitting up’ innocents so they meet their targets, or letting guilty parties go free ‘for the greater good’.

Practicing guardianship under commercial precepts will lead to ethical dilemmas. Legal systems across the world see nothing wrong in ‘Plea Bargaining’. The accused plead guilty to a lesser charge to save the cost of an expensive trial. However, it ends up with innocents pleading guilty rather than risk both the lottery of a trial and the huge costs of legal fees to themselves. Paradoxically, convicted criminals are routinely set free after serving only a fraction of their sentence because the cost of jailing them has become prohibitive.

Paul Condon, head of the Metropolitan Police for most of the 1990s coined the phrase “noble cause corruption”. In other words officers believed they were justified in bending the rules to get a conviction of career criminals even though they had no proof. By the same token criminals were let off charges provided they ‘traded’ the names of other criminals, or were charged with lesser offences if they admitted to a string of offences (many of which they didn’t commit) just so that the police ‘clean-up’ rate would improve. Jacobs herself describes how officers from the New York Transport Police falsely arrested innocent African American and Hispanic men systematically, just so their productivity measures (arrests-per-working-hour) looked good. It all came to light when they booked an off-duty policeman.

‘Noble cause corruption’ is coursing through the veins of both HMRC and IRS. Virtuous with indignation, tax collectors are targeting the rich, and see nothing wrong in assuming High Net Worth Individual (HNWI) taxpayers are ‘guilty until proven innocent’ – they assume the rich are automatically guilty of not paying their ‘fair share’. Sending out arbitrary tax demands and then insisting that the target must pay up or go to jail, and that it’s the taxpayer’s problem to prove overcharging and claim back the excess. Imagine what would happen if this process is incentivized! What if the tax collectors receive a percentage of every extra dollar/pound/euro they pull in to treasury coffers. We would see Jacob’s ‘Law of Intractable Systemic Corruption’ in operation, and tax collectors would revert to the archetypal social pariahs known from biblical stories.

Ogden Nash hit it on the head “professional people have no cares, whatever happens they get theirs”. The 2009 scandal of British MPs fraudulently receiving substantial expenses claims is a classic example – Jacqui Smith, the then Home Secretary no less (with the role of overseeing law and order in the U.K.), reclaimed amounts both small (the cost of hiring pornographic movies) and large (declaring her sister’s house in London as her second home, and thus chargeable).

When the normal practices of a group, whether a guardian or a trader, diverge from the ethics of its syndrome then virtue and vice become indistinguishable. The rules of the game lose all meaning. Most of the disgraced MPs saw nothing wrong with what they were doing, because they were operating within the letter of the law, but not the spirit – for example Sir Peter Viggers using taxpayers’ money to furnish a duck house on the family lake! Added to this there are numerous stories of MPs selling influence and access.

Jane Jacobs makes it totally clear that no single system of morality can accommodate both commerce and guardianship. Taking and trading are two fundamentally different syndromes. Mixing them up eventually must create enormous tensions … but not straight away. A series of minor misdemeanours, each in itself trivial and convenient, useful even, are the first steps on the road to perdition. No alarm bells ring; but whenever a ‘nice little wheeze’ is copied, or there are variations on the theme, society gradually slides into full-blown corruption. Drip, drip, drip, until the floodgates open. Then the guardians, instead of being the source of standards, and the punisher of wrongdoers, are corrupt and corrupting. Meanwhile the traders are making you ‘an offer you can’t refuse’. No one asks quis custodiet ipsos custodes? (Juvenal); ‘who guards the guardians’ when morality collapses into vice.

Throughout most of human history, trade and guardianship were rigidly separated, a fact that has been carelessly ignored since the Industrial Revolution. Mediaeval orders of chivalry barred any man whose parent, grandparent, or great-grandparent was a merchant. Anyone who was remotely involved in trade would lose all rank and privileges. Usury, lending money at interest was singled as particularly repugnant. Dante’s Inferno placed usurers alongside sodomites in the seventh circle of hell – both apparently guilty of heinous sins against the natural order of God’s will. This is why it was left to communities on the margins of society to undertake this necessary but distasteful chore of money lending: the slaves in Ancient Athens, the Jews in medieval Europe. According to Franciscus Gratianus, a medieval monk from Bologna “business is nothing but the struggle of wolves over carrion, men of business can hardly be saved for they live by cheating and profiteering”.

India has had the caste system for millennia, with the guardians (warriors and priests) at the top, and trade and crafts in subservient roles. For example, just after the time of Alexander the Great, the Maurya Empire (321-184BC) maintained a huge standing army (200,000 men by some accounts) on the back of trade. The tentacles of the requisite bureaucracy that supported this military state insinuated its way right down to the village level. Tax collectors kept detailed records of people, land and livestock, and all this was supported by a sophisticated network of informants.

The modern day nation-state may seem more sophisticated, but many are still based on the assumption of the same tribal values in that citizens are all property of the state, or rather of the leaders of the state. HNWIs believe that politicians seek to harvest their wealth in order to support the idle poor in society, who in return vote the political elite into power. Although it must be said that it is not just the rich who are targeted. Everyone who is merely successful in what they do can expect to see their consequent above-average income ‘fairly’ redistributed, to support those that the wealthy deem parasites in society, by demanding the right to the good life, free of effort. As a consequence the unemployable observe governments stealing from anyone who works, and so see no point in even seeking work. The problem of moral jeopardy arises when the employed also start questioning the merits of working.

The well-run state recognizes the need for harmony between the guardians and trade. The guardians must deliver the freedom for commerce to operate, and in return they should receive a fair payment from taxes. Death and taxes are always with us, but those taxes should be set at a level where trade sees them as fair payment for services rendered. The state should be one large social network of trust; and trust will only flourish where honesty is the norm. We have witnessed a growing resentment. The HNWIs see their tax dollars being spent on unnecessary wars, on vanity projects, on pork barrel politics, and dissipating in inefficient bureaucracies. This is made worse when interfering and excessive regulations become ‘a denial of service attack’ on the freedom of business to operate effectively.

In a well-run state, the rule of law must be maintained, and the social status of the parties in dispute should not impact on the result of arbitration. In Jacob’s ideal society high rank or political connections should not permit the holder “to terminate a lease on a whim, evade a legitimate debt, welsh on a promise to deliver, withhold agreed-on wages, and so on”. It is the guardians who enforce these virtues, which is why it is best that they are in no way involved in trade, and do not force their ethical values onto traders. To avoid Jacob’s “Law of Intractable Systemic Corruption” disrupting the practice of both trade and guardianship, then the two groups must remain separate. This means that ex-politicians should be barred from taking up highly paid consultancies and directorships in business.

The situation is further complicated when freewheeling HNWIs decide not to stay in a jurisdiction where they are treated as second-class citizens. Having flown the coop at least once, they think nothing of fleeing again, and again, totally undermining the state’s ability to tax and regulate the super-rich. If the guardians want the wealthy to stay, and thus benefit the local economy, then tribal leaders must not overly intimidate the entrepreneurial elite in their society (immigrants and home grown) no matter what the demands of the great unwashed. Any attempt to extort excess wealth from them for the ‘common good’ would be a grave mistake. As far as the HNWIs are concerned the ‘common good’ isn’t good, it is merely common! They agree to pay their ‘fair share’, as long as it is also fair to them: they will insist that their money is spent on projects of which they approve, and from which they see the benefit. The rich did not sign up for excessive taxes and regulation. And yes, they did sign up; but only by default, and unlike the poor, the rich have the choice of leaving. They can un-sign. A world full of regulatory arbitrage and tax holidays awaits. This freedom inevitably places a huge strain on the relationship between trade and guardians.